BARRE TOWN — School board members here struggled this week to decide what to do with a near seven-figure surplus.

Armed with an audit that indicates the town’s pre-K-through-8 school district ended the fiscal year in June with a $925,000 fund balance, board members had to determine how much of that money to put toward the $10.46 million budget they will ask voters to approve in March.

The proposed budget, which reflects just over $300,000 in new spending, a 2.9 percent increase, was unanimously adopted by the five-member board Wednesday night.

That proved to be the easy part, as board members and school administrators agreed the spending plan was both educationally sound and responsive to taxpayers in what Chairwoman Brenda Buzzell characterized as challenging economic times.

“This is a good, solid budget,” Buzzell said. “We aren’t asking for more money than we really need.”

Tewksbury, chairman of the board’s finance committee, said the spending request underwent a line-by-line review that was unprecedented in his four-year tenure.

“We’ve looked at it literally with a fine-tooth comb,” he said, prompting a groan-inducing reply from Bacon.

“We got all the lice out of this budget,” Bacon said. “There’s nothing lousy about it.”

Tewksbury said the spending increase could be traced to negotiated pay raises, the rising cost of health insurance and the continued expansion of a preschool program that is expected to generate offsetting revenue.

According to Crowley, three paraeducators who were included in the budget for the current year were cut, as was an existing half-time teaching position. However, he said, student-teacher ratios at the school will still fall within the class size policy approved by the board, there will be no interruption in the school’s behavior intervention program, and building maintenance will remain a priority.

Board members soon turned their attention to a surplus that swelled from $285,000 to $925,000, according to the latest audit.

Board members were told that unspent stimulus funds, unanticipated grants and solid fiscal management fueled the fund balance, which Business Manager Mark Lyons expects will shrink to around $655,000 by June 30 based on the district’s financial performance so far this fiscal year.

Lyons stressed that was an estimate and warned against using all — or even most — of the audited fund balance to blunt the tax increase required to pay for the proposed budget.

One option, Lyons said, would be to use some of the surplus as revenue for the budget and ask voters to place the rest in a tax stabilization fund that could be used in future years.

Bacon argued against that idea, which he said could be problematic from a financial management perspective regardless of the outcome.

If voters rejected the concept of a tax stabilization fund, Bacon said, the board would be bound to use the entire surplus to reduce taxes this year — virtually assuring a huge increase the following year. If voters approved the stabilization fund, he said, it would deprive the board of some flexibility heading into an already uncertain year given the yet-to-be-settled debate over federal spending cuts.

Although school administrators are bracing for a reduction in federal funding — from $385,000 to $350,000 — deeper cuts could prove problematic.

“If the ‘fiscal cliff’ really goes wild, we may not have that $350,000 in grant money and you may want to dip into some of your fund balance to pay for certain things that we’ve paid for with grant money in the past,” he said.

Board members expressed concern over the perceived absence of a “cushion” in this year’s budget request, while suggesting a substantial portion of the fund balance be used as a form of property tax relief.

That isn’t a new concept. The current year’s budget contemplates using nearly $325,000 in surplus funds as revenue.

Crowley said matching that amount might make sense and, if Lyons’ estimates are accurate, should put the board in a position to do the same a year from now.

“We give (the surplus) back in a balanced, sensible way,” he said.

Though a $500,000 option was briefly on the table, board members agreed that $327,500 — 50 percent of the anticipated year-end surplus — would be appropriate. The board reserved the right to increase the amount to be used when Lyons has a better handle this spring on where they can expect to end the year.

Although there is still some guesswork involved, the board’s adoption of a budget and decision on the surplus put Lyons in a position to project an increase of roughly 7 cents in the local education tax rate.

Most of that increase — about 5.2 cents — is tied the newly approved budget for Barre Town Middle and Elementary School. The balance — 1.7 cents — would be required to cover the town’s share of operating Spaulding High School.

The projected tax rate assumes a 4 cent increase in the statewide property tax rate and would be steeper if not for an uptick in the town’s common level of appraisal.

The common level of appraisal, or CLA, is a calculation the state uses to equalize property values among communities for school funding purposes. If the state believes a municipality’s valuation of its property isn’t current, it raises the tax rate a corresponding percentage.

In Barre Town, that formula is working in reverse for the third straight year, because the town’s CLA recently climbed from 85.84 to 86.43 percent of fair market value.

Although the board approved a budget of $10.46 million, the number that will appear on the Town Meeting Day ballot will be just over $10.8 million. That figure includes $350,000 in anticipated grant money. The board will again ask voters to appropriate $25,000 toward future repairs to the school roof.